How governance system affects business, economic growth
Published On July 14, 2021 » 922 Views» By Times Reporter » Business, Columns
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EVERY business and national economy interconnects and is affected by the individual variables in its surrounding environment: technology, the political environment, and the like.
What has the political environment have to do with a nation’s macro and economic business environment?
How can a nation’s political or governance systems enhance individual businesses, and the extent to which a nation’s economy develops?
As previously alluded to, they say, “if politics isn’t your business, you keep politics out of your business”
The discourse is certainly not discussing politics!
Indeed, the purpose of this discourse is to look at how a nation’s democratic or governance practices affect the level and extent of business and economic growth in any country.
Investors always have their eyes wide open to assess whether a nation’s governance system will enhance their investments.
They are also always keen to assess the state of a nation’s rule of law and judicial systems.
Investors inevitably ask themselves questions such as “Will our investments be expropriated or taken over by the Government in power or a likely incoming government?”
Following on, they will further ask themselves, “In the event of an expropriation, does the country have a competent and independent judicial system on which we could reliably fall back on for recourse?”
Once again, it should always be noted that the industrial revolution that took place in Great Britain in the 15th Century wasn’t only as a result of technological inventions.
Technological inventions were only part of it.
There is more to it: a fair, stable and inclusive political system, a reliable and competent judicial system and so forth.
With this in place, British investors were reasonably assured that they could put their monies in other people’s inventions and ideas and their monies were safeguarded.
Can we look at another real- life Zambian business scenario,
Copperbelt Energy Corporation (CEC) Plc, Konkola Copper Mines (KCM) Plc?
What do foreign and local investors think about the recent past year’s happenings that have embroiled these companies?
Remarkably, such incidents send signals of one kind or another to investors.
Additionally these signals could be positive or negative and nevertheless, get to the minds and hearts of investors.
Interestingly, just as Samson in the Bible story was unaware that his source of strength – his hair had been shaved while he was sleeping, national economies like Zambia too, sometimes don’t realise what has happened to their investor confidence until a significant incident happens.
Similarly, at the outset of the Primary Dealership Model (PDM) in late 2018, Zambia’s economic managers thought all was well until the model’s implementation failed due to a number of factors including the existence of insufficient numbers of investors on the money market.
Traditionally, the demand for the Zambian government securities by foreign investors was negligible until 2005.
Since then, the demand rose from less than one per cent in mid-2005, to about 18 per cent up to 2006 before declining to about 13 per cent thereafter.
This over the years saw foreign investors dominate the Zambian government securities market.
However, in the recent years, this demand by foreign investors for government securities has been dwindling, without any corresponding upward response in domestic investor demand for these securities.
The K1 billion is, what were the underlying factors responsible for the dwindling levels of investor confidence?
On the other hand, it should clearly be noted that the level and extent of democratic or governance systems in the country is not the only factor behind good economic performance.
However, it provides the long-term political stability and corrective mechanisms that form a foundation for safe investment and steady growth.
It should further be noted that when a nation’s governance systems are built on respect for human rights and the rule of law, they in turn culminate into the establishment of unfettered development of the private enterprise system in the country.
Conversely, regimes that are seen to oppress their populations are more likely to limit business opportunities and in themselves become barriers to trade, and in turn fail to enforce contracts.
Let’s take another classical example of economic development, Ethiopia.
Ethiopia has over the last ten years undertaken political and economic reforms which had seen the country overcome its years of economic upheaval and famine which ravaged the country in the early 1980’s.
Thankfully, the country has become one of the world’s fastest-growing economies and grew by an average of nine to 11 per cent between 2004 and 2014.
Last year the conflict in Ethiopia arose from tensions between the federal government and Tigray’s ruling party TPLF when the state held regional elections even after Addis Ababa Government had suspended national elections due to the COVID-19 pandemic.
This pitfall on the Ethiopian governance system is slowly keeping investors and the international community awake at night and is projected to halve the country’s economic growth.
When all is said and done, it’s imperative on policy makers, and economic managers to ask themselves brutally honest probing questions on whether the state of the rule of law, judiciary and Zambia’s democracy and governance systems inspire investor confidence or not.
This would go a long way to increasingly add to the current rate and level of the country’s economic and business growth.
For comments e-mail: Mobile +260977403113 +260955403113
The author is the Managing Consultant at G. N Grant Business Consultant, a Chartered Certified Accountant (ACCA), a Master of Business Administration (MBA) holder, with a Specialism in Strategic Planning, and a candidate for the Herriot Watt University (Scotland) Doctor of Business Administration (DBA)

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